Tennessee Life Producer Practice Exam

Why is a Universal Life policy sometimes referred to as an unbundled Life Policy?

1. It allows full flexibility in premium payments

2. It separates cost components like interest and charges

3. It offers a guaranteed minimum death benefit

4. It has no cash value feature

The correct answer is: It separates cost components like interest and charges

A Universal Life policy is often referred to as an unbundled life policy because it distinctly separates and itemizes various cost components associated with the policy. These components include the cost of insurance, administrative expenses, interest credited to the cash value, and any other fees that may apply. This unbundling provides policyholders with transparency regarding how their premium payments are allocated. Policyholders can see how much of their payments go toward the death benefit and the insurance costs versus how much is added to the cash value. This clear delineation allows for more informed decision-making regarding premium payments and adjustments to the policy as financial needs change over time. This flexibility and transparency are key features that distinguish Universal Life policies from more traditional life insurance products, making it easier for policyholders to manage their insurance coverage effectively.